Link: Will the Real SPY Analysis Please Stand Up

Jan 3, 2008: 11:19 AM CST

Bonddad at the Bonddad Blog recently posted brief analysis entitled “Will the Correct SPY Please Stand Up?” that offers multiple perspectives on the current technical chart/perspective of the S&P 500 Exchange Traded Fund, which also highlights why technical analysis is more of an “art” than a science.

The current analysis of market conditions is indeed slightly difficult, given that there are multiple ways to interpret the action from various perspectives and pattern recognition.

A pattern that develops and eventually unfolds may (and often does) take on characteristics of other smaller or similar patterns in its development.

For example, if the SPY is indeed forming a diamond pattern, then it must form a broadening pattern first.

A second possibility is that an ascending triangle will first form what appears to be a double top formation.  Other patterns require the formation of similar patterns as well.

Bonddad looks at various charts and ponders whether a diamond, double top, broadening pattern, or simple triangle is currently forming on the SPY.

For me, his post is excellent in the fact that it highlights the fact that analyzing the stock market from a technical (charting) perspective is more complicated than “read pattern in book, see pattern on chart, trade pattern, make money.”

It’s more like “learn pattern, see pattern, trade pattern with protective stops, adjust if your stops are hit, observe new developing pattern, trade new pattern with protective stops, repeat.”

The underlying notion is that there are no guarantees, but only probabilities.

That’s why this game is so fun to those who love it!

1 Comment

One Response to “Link: Will the Real SPY Analysis Please Stand Up”

  1. jacksoo Says:

    Hi Corey – first off let me wish you a Happy (profitable!) New Year and say how much I look forward to learning more over the coming year. Interesting post today – my brief dealing with TA would certainly support the more art than science comment. I would also agree that an incremental approach, increasing buys and changing stops, on patterns being confirmed is the surest way to limit risk – and I belive that, avoiding portfolio blowout, is more important than increases: afterall a 100% gain on $0 doesn’t amount to much. Anyway, the point I wanted to raise concerned soemthing I beleive is called the ‘death cross’ which occurs (?) when the 50dma crosses below the 200dma – I hope I’ve got this right and if so isn’t it occuring/close to occuring on most all DJI charts? Is there any significance to this? All the best.